What is a 401? Employers provide 401 plans as retirement savings plans for employees.
These plans are tax deferred and are one of the defined contribution plans in the Internal Revenue Code.
This means that you contribute a certain amount of each paycheck to your savings and your employer matches the contribution.
How much of your contribution they match, or if at all, depends on the plan as structured by the company.
The amount you contribute is deducted from your salary before taxes are applied, therefore you pay less income tax.
The savings is invested in a cluster of mutual funds, bonds, company stock and money market accounts, which you hand pick.
The one condition of the plan is that if you withdraw the money before you are 59.
5 years old, you will have to pay taxes and a 10% penalty fine to the IRS.
The condition exists because the entire purpose of the plan is to encourage retirement savings.
How it Works for You Other than the obvious benefit of having a retirement savings plan, the structure of 401(k) plans provides employers with several advantages.
For one, the money is deducted from your salary before you receive making the act of saving very easy.
Also the amount you contribute is free from Federal and State taxes, as well as any earnings the investment makes.
Experts do the actual investing so the burden of choosing the right combination of stocks and bonds is taken off your shoulders.
Under certain circumstances, your 401(K) saving is available to you if you are in a time of need.
Depending on your situation you can take loans or hardship withdrawals from your account.
When you can begin to invest and how much you contribute is stipulated by your employer's policy.
New employees are typically required to serve their company for six months to a year before they can start participating in the program.
Your contribution can typically range from 1-20% of your salary.
The law and inflation rates determine the maximum pre-tax dollar amount.
If You Leave Your Job or Your Job Leaves You Whether it be because you found better opportunities elsewhere, or your company's downsizing left you out in the cloud, there are procedures for transferring your 401(K) should you leave or lose your job.
If you are under the plan's normal retirement age and have at least $5000 in your account, you may keep your savings in your former employer's 401(K).
Otherwise, you may be forced to take a distribution.
Another option is rolling the money over into a new 401(K), however there is no grace period for this.
To avoid being charged income tax and the 10% penalty fine, make sure that the check is written out directly to the new account.
Withdrawing your money is also an option, but even if you are of the retiring age you will have to pay income taxes.
In the event that your employer goes bankrupt, you are insured.
The retirement savings you have accumulated is in trust by an independent custodian and the money remains yours.
These plans are tax deferred and are one of the defined contribution plans in the Internal Revenue Code.
This means that you contribute a certain amount of each paycheck to your savings and your employer matches the contribution.
How much of your contribution they match, or if at all, depends on the plan as structured by the company.
The amount you contribute is deducted from your salary before taxes are applied, therefore you pay less income tax.
The savings is invested in a cluster of mutual funds, bonds, company stock and money market accounts, which you hand pick.
The one condition of the plan is that if you withdraw the money before you are 59.
5 years old, you will have to pay taxes and a 10% penalty fine to the IRS.
The condition exists because the entire purpose of the plan is to encourage retirement savings.
How it Works for You Other than the obvious benefit of having a retirement savings plan, the structure of 401(k) plans provides employers with several advantages.
For one, the money is deducted from your salary before you receive making the act of saving very easy.
Also the amount you contribute is free from Federal and State taxes, as well as any earnings the investment makes.
Experts do the actual investing so the burden of choosing the right combination of stocks and bonds is taken off your shoulders.
Under certain circumstances, your 401(K) saving is available to you if you are in a time of need.
Depending on your situation you can take loans or hardship withdrawals from your account.
When you can begin to invest and how much you contribute is stipulated by your employer's policy.
New employees are typically required to serve their company for six months to a year before they can start participating in the program.
Your contribution can typically range from 1-20% of your salary.
The law and inflation rates determine the maximum pre-tax dollar amount.
If You Leave Your Job or Your Job Leaves You Whether it be because you found better opportunities elsewhere, or your company's downsizing left you out in the cloud, there are procedures for transferring your 401(K) should you leave or lose your job.
If you are under the plan's normal retirement age and have at least $5000 in your account, you may keep your savings in your former employer's 401(K).
Otherwise, you may be forced to take a distribution.
Another option is rolling the money over into a new 401(K), however there is no grace period for this.
To avoid being charged income tax and the 10% penalty fine, make sure that the check is written out directly to the new account.
Withdrawing your money is also an option, but even if you are of the retiring age you will have to pay income taxes.
In the event that your employer goes bankrupt, you are insured.
The retirement savings you have accumulated is in trust by an independent custodian and the money remains yours.
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